Series 3: 1.2.3. Short And Long Positions

1.2.3. Short and Long Positions

A trader who buys a futures contract incurs a later obligation to receive an underlying asset. Depending on the contract, the underlying asset may be a commodity, a bond, or a currency. Buying a futures contract is called taking a long position or going long. A long position is an agreement to purchase a commodity or financial product at a contract price. A long position is adopted when the investor expects the price to rise and bring a profit when sold. Going-long futures means that the buyer of a futures contract has an obligation to receive and pay for the underlying asset at some specified price and settlement date. The only way to avoid this obligation is to sell the contract prior to expiration.

In contrast, selling a futures contract is called taking a short position. A short position in futures trading is an agreement to deliver a commodity or financial product, with the expectation that its value in the market will fall prior to delivery. The trader who shorts a futures contract or goes short must de